HCP, Inc. (HCP): Higher Rentals For This REIT

Organized in 1985, HCP, Inc. (NYSE:HCP) operates as an equity REIT seeking to own and manage real estate properties in five healthcare segments; senior housing, skilled nursing, life sciences, medical offices, and hospitals. This self-managed company believes in catering to the US healthcare sector and managing investments that are well diversified by geography, operator, tenant, and investment product.

Recent Quarter’s Performance

HCP disclosed solid performance for the fourth quarter of 2012 on higher rentals and related revenues. The company reported an over 2-fold increase in its funds from operations (FFO). Total revenues for the fourth quarter surged 11% from a year ago to $508.5 million. Much of this surge was thanks to an increase in Rental and Related revenues and Interest Income. Rental and Related Income surged 13.5% year over year to $278.1 million, while Interest Income of $12.2 million advanced many folds from a year ago.

During the quarter, cost and expenses of $305.7 million were managed well as they declined 23% compared to the cost and expenses from a year ago. The decline in expenses was supported by the weighed down litigation expense, partially offset by a hike in interest expense and depreciation & amortization expense. As a result, the company posted a net income per common share of $240 million, compared to $62 million at the end of the same quarter of the prior year. The company reported FFO of $0.71 per share, up 92% from the same quarter in 2011.

Acquisition & Mergers

The company indulged in various acquisitions during the fourth quarter that are expected to help both the top line and the bottom line in the coming quarters. HCP entered into a joint venture worth $1.7 billion consisting of 129 housing communities of senior housing. As per the contract, the rent will increase annually by at least 3.7%. Additionally, investments of $141 million were made on other projects. $62 million was used to purchase two MOBs, while $79 million was used to fund development and other capital projects. Two senior housing facilities were sold during the quarter for $111 million total.

2013 Outlook

The company expects an FFO of $2.92 – $2.98 per share for 2013, representing a growth rate of 6% over the FFO of 2012. The company also expects to post a bottom line within the range of $1.95 – $2.01. Besides, the company increased the quarterly cash dividend 5%, representing its 28^th consecutive year with a dividend hike.